This appears in  Straits Times Forum.


AS A stock-market participant, I have always thought that the covered warrants issued by financial institutions should track the movements of the underlying instruments closely.
Warrant issuers are supposed to have market-markers to ensure that when the underlying instrument appreciates, the call warrants will appreciate in price, and when the underlying instrument depreciates, the put warrants will appreciate in price. This is far from the case in reality.

Having watched the movements of some STI put warrants for the last few weeks, I must say that their movements are hardly in tandem with the performance of the STI. When the Straits Times Index is down, the put warrants are also down or hardly appreciate. But when the STI is up, these put warrants come down with a vengeance. Their movements are inexplicable and highly suspicious.

I list below the respective prices of the STI and a put warrant issued by Societe General, STI3000SGAePW 70628, for the last few days:


May 10: Closing 3,469; warrant price $0.065

May 11: Closing 3,446; change -23; warrant price $0.065

May 14: Closing 3,501; change +55; warrant price $0.045

May 15: Closing 3,475; change -26; warrant price $0.04
On May 11, when the STI was down 23 points, the put warrant remained unchanged (when it should have appreciated). On May14, when the STI went up by 55 points, the put warrant promptly depreciated by more than 30 per cent to $0.045. On May 15, when the STI was down 26 points, the put warrant, instead of appreciating, actually fell!

This is not a lone example but representative of many others I have observed.

It seems to me that the warrant issuers have no fiduciary duty to play the market-maker's role. After all, these derivatives have an expiry date and they become worthless upon expiry. Monies collected from the sale of these warrants are pure profit upon warrant expiry. The cheaper they are towards expiry, the better it is for the warrant issuers.

When the authorities concerned allow financial institutions to issue derivative instruments, they should ensure that these institutions perform their role in a proper manner. Otherwise, the unwary are in for a raw deal.

Tjioe Tjiong Lip

 

"


SET at five-month high as political tensions ease

Thai stocks rose 1.32% yesterday to a five-month high on growing optimism that the political deadlock that has paralysed the country's policymaking and economy was nearing an end. 

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That should give some indication of STI's performance on Friday and thereafter.

Regarding China, I would bet the the desire to make money is the dominant force at play. See what happened when the authorities there tried so hard to dampen the market? The market became even stronger (rose more!).

Livermore... :)

Yes... I fully understand your sentiments in that rather common experience...

I would call that part and parcel of the rough and tumble stock market world of hard knocks.

Well... actually, that's what the stock market is about...

Anyway, I see you are a good trader too... :)